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Issues: Assessment of capital gains on surplus amount received from the sale of a running concern, apportionment of surplus between movable assets and goodwill, determination of goodwill value based on future profit estimates.
Analysis: The judgment pertains to an agreement of sale entered into by the assessee with a company, involving the sale of a running concern for a specific sum. The consideration received by the vendor was a combination of actual money and liabilities taken over by the purchaser, resulting in an overall surplus. The Income-tax Officer assessed a portion of this surplus as profit under section 41(2) of the Income-tax Act, 1961, and the remaining amount was claimed by the assessee to be related to the transfer of goodwill, citing precedents to support the non-taxability of this amount as capital gains. The Appellate Assistant Commissioner initially held that the surplus amount was not assessable and set aside the profit computation under section 41(2). However, the Revenue appealed against this decision. The Tribunal, after evaluating the potential profitability of the concern, determined that a portion of the surplus could be attributed to goodwill based on future profit estimates. The Tribunal concluded that a specific amount was not liable to tax as capital gains, while the remaining balance was to be assessed as capital gains attributable to the sale of movable assets. The questions raised in the appeal revolved around the apportionment of the surplus between short-term and long-term capital assets and the determination of goodwill value. The counsel for the assessee argued for the entire surplus amount to be considered as consideration for goodwill, but the Tribunal's estimate of goodwill value based on future profit projections was upheld. The judgment affirmed the Tribunal's findings, answering both questions in the affirmative - in favor of apportioning the surplus between movable assets and goodwill and confirming the Tribunal's valuation of goodwill. As a result, there was no order as to costs due to the mixed outcome in the references.
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